Energy & Metals Outlook

Volatility in commodities has increased over the past two months, in response to shifts in exchange rates and expectations regarding the global economic outlook. In particular, Crude Oil, which rose around 40% in the year to June dropped sharply in July. The UK only accounts for a small proportion of total global energy demand, but Brexit has affected risk appetite and the US dollar, against which most commodities are priced. Brent has since rallied on speculation that OPEC and other major producers, like Russia, will agree to slash production next month. Speculation that excesses in oil supply will be cleared in the second half of 2016 certainly provided support. Yet the US fracking of shale has made it difficult to forecast global supply, while a wide range of disparate interests among OPEC members raises questions about their willingness to hold output at agreed levels. Industrial Metals did not suffer as much as Energy prices in July, but the upward price momentum that existed prior to June 23 has eased. Zinc, though, continues to benefit from earlier mine closures – from Woodlawn in Australia to Lisheen in Ireland – and a lack of development projects in the pipeline. Likewise, a tightening of supply and news of a pollution crackdown by Beijing, which disrupted some private smelters, has lifted Tin. In China, new mining regulations for Coal, including a cap on the number of working days, have aided a recovery in the fossil fuel. Most panellists, though, expect its price to remain in check, due to tight emission standards in the US and Europe and the current low costs of cleaner energy sources.

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